When the government fears the people, there is liberty. When the people fear the government, there is tyranny.

Thomas Jefferson

I’m neither traitor, nor hero. I’m an American.

– Edward Snowden

Poor Edward Snowden. There aren’t many real heroes. Most of the people who pass for heroes are just puffed-up jackasses… and stuffed-shirt impostors. Roosevelt. Lincoln. Bernanke.

Snowden denies it. But he is the real thing. He gave up his cozy, comfortable life so that others may see the evil that lurks in the shadows… and do something about it.

But he sacrificed himself in vain; he didn’t realize the fix was in. It’s too late to “blow the whistle.” Besides, the people he is trying to help aren’t worth it. They hear the whistle and run for cover. Whistleblowers will be hunted down… not protected.

The feds will make an example of Snowden. So the people will fear the government even more. The poor man has thrown his body on the grenade for nothing.

We will come back to that in a moment. First, let us check in on another explosion… the comfy little fantasy of Ben Bernanke is blowing up.

The Dow went down another 139 points on Monday. Gold fell $14. But wait. It gets worse. From Bloomberg:

“The lost decade for bonds has begun,” Howard Ward, the chief investment officer at Rye, New York-based Gamco Investors Inc., which oversees $36.7 billion, said in a June 19 telephone interview. “Stocks are likely going to be the asset class of choice over the course of the next 10 years. Now that the tide has turned and the economy is doing better, investors in bonds are going to have a hard time making any money.”

A Brief History of Bonds

A brief summary of the history of the bond market:

Bond prices went up from the end of the Civil War to the end of the 19th century.

They went down for the next two decades…

And up for the following three decades…

After World War II, bonds fell again – until the early 1980s, when they headed up.

And here’s the important part of this history:

The bond market made another historic turn last month.

Of course, we won’t know for sure for many years. But it looks to us as though the long-awaited top has come.

If this is true, it is the most important bit of financial ‘news’ you will read for the next 10, 20, maybe 30 years.

Falling bond prices (and rising yields, which move inversely to prices) change everything. They make it harder to finance new businesses… new cars… or new houses. And they are especially tough on debtors.

Alas, there are more debtors, with more debt, now than at any time in history. Debt levels rose spectacularly from 1980 to 2013. The typical household had debt equal to about 60% of disposable income up until 1980. The ratio rose to about 130% at the peak of the credit bubble. Now, it’s near 115%.

And the ratio of total US debt to GDP is now 350% – more than twice what it was in 1980.

Higher rates will force down debt levels – one way or another. Assuming they go back to pre-1980 levels, that will mean about $30 trillion worth of debt that needs to be worked off, written off, downsized, de-leveraged, defaulted on…

…or inflated away!

More on that as the story develops.

Now back to Snowden.

A Twisted Loop

When you make a mistake, usually there is a negative feedback loop, which lets you know you’re headed in the wrong direction. You borrow too much money, for example, and your creditors begin trailing you with court orders or baseball bats.

But in a major public policy disaster, the feedback loop is twisted. The feds spend too much money, for example… and give the bill to the next generation. The poor youngsters can’t vote. Many are not even born yet.

A police state is a disaster. It has its own ways of bending the feedback loop. From the Government Accountability Project:

In a surveillance state, the enemy is the whistleblower.

If every action has an opposite and equal reaction, the whistleblower is that reaction within the surveillance state. Dragnet electronic surveillance is a high-tech revival of tactics used to attack the civil rights movement and political enemies of the Nixon administration. Whistleblowers famously alerted the public to past government overreach, while helping to defend both national security and civil liberties.

In contrast, secrecy, retaliation and intimidation undermine our Constitutional rights and weaken our democratic processes more swiftly, more surely, and more corrosively than the acts of terror from which they purport to protect us.

Every public policy disaster produces zombies. And armed zombies protect themselves… with arms, naturally.

Stalin purged his rivals and adversaries. He starved millions to death in camps in Siberia. Hitler had leaders of the White Rose, a group of students that opposed the Nazi regime with an anonymous leaflet and graffiti campaign, beheaded with an axe.

In 1936, rebelling Japanese army officers assassinated Japan’s finance minister, Takahashi Korekiyo, after he called for a cutback in military spending. And the Argentine military junta “disappeared” thousands of whistleblowers and other troublemakers, dropping their bodies from airplanes into the Rio de la Plata.

And now, Edward Snowden is on the run…

Who knows? Maybe he’ll get lucky. Maybe he’ll get away. Or maybe another hero, in Washington, will come forward… and find the courage to protect him.


Bill Bonner